British Lawmaker Advises Investors To Take Their Money Out Of The UK
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In an op-ed in the Financial Times, the Chief Global Strategist for Charles Stanley, John Redwood, advises investors to remove their money from the United Kingdom. “Time to look further afield as the UK economy hits the brakes”, says his headline.
The UK economy is indeed slowing down. The Office for National Statistics reports that year-on-year GDP growth is now running at around 1.5%, well below the 3 percent of three years ago, though slightly better than the 1% of early 2017. However, much of that slowdown comes from a weak housing construction sector: the UK’s dominant services sector is ticking along, while manufacturing is recovering. Importantly, the ONS says that economic sentiment is improving. So why is Redwood so pessimistic?
In a word, credit. Rising inflation, largely due to the fall in sterling after the shock result of the EU referendum in June 2016, is squeezing real incomes. Continually rising consumer credit is unsustainable when real incomes are falling, so it was inevitable that there would soon be a significant contraction of bank lending. That is now coming to pass.
As Redwood notes, the Bank of England has continually warned about rising consumer debt burdens. In June this year, it tightened mortgage lending standards. And in September, it imposed higher capital requirements on banks to guard against the possibility of losses from rising consumer loan defaults. This has no doubt contributed to banks’ decision to reduce unsecured consumer lending. Further contributory factors include the Bank of England’s recent decision to raise interest rates, and the Monetary Policy Committee’s warning that because of Brexit, the UK faces a poorer future:
“Monetary policy cannot prevent either the necessary real adjustment as the United Kingdom moves towards its new international trading arrangements or the weaker real income growth that is likely to accompany that adjustment over the next few years.”
Such warnings tend to discourage borrowing, reducing demand for loans as well as supply.
As I have explained before, in the UK’s consumption-dominated economy, when households cut back borrowing, GDP growth falters. The UK is therefore facing a much sharper slowdown than the ONS is currently forecasting. Redwood, it seems, agrees with me – though he does not mention Brexit, for reasons that will shortly become apparent.
Redwood’s advice to investors is to flee the UK before the credit crunch bites:
“I sold out of the general share ETFs in the UK after their great performance for the year from early July 2016 when I saw the last Budget and heard the BoE’s credit warnings. The money could be better put to work in places where the authorities are allowing credit to expand a bit, to permit faster growth.”
Sounds sensible, doesn’t it?
No. It is an absolute disgrace for this man to give such advice.
You see, the Rt. Hon. John Redwood MP – to give him his full title – is a lawmaker. He is an elected member of the House of Commons. And not just any lawmaker. He is a senior member of the Conservative Party, which is currently in government and making a total hash of the Brexit negotiations. He is also a former Cabinet Minister and a member of the Privy Council.
This senior lawmaker is advising investors to stop investing in his country.
Unsurprisingly, Redwood’s FT profile doesn’t mention his political role. After all, telling investors not to invest in the UK is hardly patriotic, is it?
And it gets worse.
A week after his op-ed was published, the EU warned that trade talks with the UK could not start until agreement was reached over the UK’s exit bill. In response, Redwood issued this tweet:
So having advised investors to remove their money from the UK, the Rt. Hon. John Redwood told the UK government to go for “hard Brexit”.
Let me remind you what the consequences of “hard Brexit” would be. According to researchers at the Ku Leuven Center for Economic Studies, the total loss of Gross Value Added in the UK would amount to 4.47% of GDP, and unemployment would rise by over half a million: this research also identifies high costs from hard Brexit for EU countries, particularly Ireland. John Van Reenen at the Massachusetts Institute of Technology calculates permanent per capita income reduction of 2.61%. The distribution would inevitably be highly uneven, disproportionately hitting the working poor, whose living standards could fall by significantly more.
These figures are shocking. Hard Brexit would mean an immediate deep recession for the UK and permanently lower living standards for many of its citizens.
Related: Leading Brexiteer admits UK is looking at a 10-year recession with hard Brexit
So the Rt. Hon. John Redwood MP advocated a course of action by the UK government that he knows would seriously damage the UK economy. This is not the only time he has advocated such a course of action: he is a prominent advocate of “hard Brexit”, insisting that anything less is not really Brexit.
And to protect his job as an investment manager, he warned his wealthy clients to get their money out before the disaster hits.
To me, this smacks of disaster capitalism. Engineer a crash while ensuring your own interests are protected, then clean up when it hits.
This is despicable behaviour by a lawmaker. The Rt. Hon. John Redwood MP is putting his own interests above those he represents. He is unfit to hold office. He should resign.
